Growing investor bullishness over the outlook for Japan's economy is being met by evaporating optimism for China, whose equity market has been among the world's worst performers this year, according to the latest Bank of America Merrill Lynch fund manager survey published on Wednesday.
The monthly survey comprising of 252 fund managers who oversee a combined $725 billion showed that each of the participants expect Japan's economy to strengthen over the next 12 months. By contrast, just 13 percent expect China's recovery to turn robust, down from 71 percent in January.
China's first quarter economic growth figure came in at 7.7 percent which was below expectations and lower than the previous quarter's 7.9 percent growth, raising questions about the strength of the rebound in the world's second largest economy.
The divergence in sentiment has been reflected in the performance of each country's stock market, with Japan's benchmark Nikkei 225 up over 28 percent year to date and China's Shanghai Composite trailing far behind, down more than 3 percent over the same period.
Bold action by the Bank of Japan to beat persistent deflation in the economy, accompanied by weakness in the yen, has led to a flood of foreign investor inflows into the country's equity market in the recent months. Allocation to Japanese equities rose for the sixth straight month in April, the survey showed, with 20 percent of the respondents assigning the market an overweight position - the highest level in six years.
(Read More: Goldman Upgrades Japan, Sees Further 20% Upside )
Chinese stocks, meantime, have struggled to attract investors owing to concerns over the government's crackdown on property speculation and slowing economic growth.
(Read More: Warning! Double-Digit Drop Coming for China Stocks)
However, it is not just China that is falling out of favor with fund managers, panelists have grown more negative on emerging markets as a whole, and on European equities, according to the survey.
"While the threat of a U.S. fiscal crisis has largely receded, anxiety over the euro zone and new risks - particularly the potential for conflict in Korea - has intensified," Bank of America Merrill Lynch said.
The Cyprus bailout crisis and rising tensions in the Korean peninsula, with North Korea's repeated threats of aggression, has had investors on high alert.
This cautiousness is reflected in an increase in fund managers' cash holdings, which are at the highest level in six months.
"Global investors are moderating their earlier exuberance in the face of somewhat lower conviction over global growth," the bank said.
The International Monetary Fund, for example, on Tuesday trimmed its forecast for the global economy in 2013 to 3.25 percent down from 3.5 percent in January.
The reduction in risk exposure was heavy in commodities, where allocations fell to their lowest level since January 2009. Seventeen percent of investors surveyed were underweight on energy stocks, the largest on record.
Discussions on the "death of the commodities super cycle" were resurrected this week as commodities including oil and metals such as gold, silver and platinum fell victim to heavy selling. Gold on Monday saw its biggest daily fall ever, while oil dipped below $100 a barrel.