Record number of asset managers bank on strong dollar

US Dollar
Grant Taylor | Stone | Getty Images

Fund managers are more bullish on the dollar than ever before, with a record number expecting the greenback to strengthen in the next 12 months, according to a new survey.

A monthly poll from Bank of America Merrill Lynch showed that a net 83 percent of fund managers worldwide expect the dollar to appreciate in the next 12 months. This is a new record, breaking a previous record set in March when 72 percent of respondents forecast the dollar would rise over the following year.

(Read More: How pros are trading ahead of Bernanke testimony)

In addition, BofA noted that equity investors were long in July on strong-dollar plays, such as U.S. and Japanese stocks, and short on weak-dollar plays, such as commodities and emerging market (EM) equities.

"The combination of a collapse in China growth expectations and record U.S. dollar bullishness sent EM equity exposure down to its lowest level in 12 years," said Michael Hartnett, chief investment strategist at BofA's global research division, in a report written after the poll.

(Read More: Investors 'Washed Out' as Sterling Hits 3-Year Low)

"Investors continue to view a China hard landing and commodity collapse (56 percent) as the biggest tail risk. In fact, they view EM as the greatest potential threat to financial market stability."

Investors' preference for equities over bonds continued in July, with a net 55 percent of fund managers underweight on bonds, the lowest level in two years. In comparison, equity allocations increased in July to net 52 percent overweight, from net 48 percent in the previous month.

(Read More: Warning: A 15% drop in US dollar may be coming)

Average cash levels peaked at 4.6 percent, the highest level in a year, and a contrarian "buy" signal for equities, according to Hartnett.

"With the support of a host of buy signals in recent weeks, the 'great rotation' is in full force. Our positive view of equities would be further reinforced if the loss of faith in China's growth story turns out to be overdone," he said.

(Read More: In the race to the bottom, US dollar falls behind)

Asset managers favored U.S. and Japanese equities in particular, and were net 27 percent overweight on Japanese stocks, up 10 points from last month.

"Investors' stance on the market is now almost as positive as that towards U.S. equities (up four points this month to a net 29 percent overweight)," said Hartnett.

The survey polled a total of 238 panelists with $643 billion of assets under management.

By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave