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Fund manager survey finds expectations of global recession on the rise

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Things aren’t looking good overseas, either, right now. According to a newly released Merrill Lynch Survey of Fund Managers, more than 60 percent of respondents believe a global economic recession is likely in the next 12 months. The fear is pushing investors to their “most risk-averse mindset yet recorded” as the survey’s Risk & Liquidity composite has fallen to its lowest level in over a decade.

According to the survey, investors are adopting more defensive strategies and shortening their investment time horizons. Thirty-nine percent of respondents are rating liquidity conditions as negative, and rank the eurozone as their least favorite destination.

A majority of European investors predict a recession in Europe within the next 12 months, and 65 percent of respondents believe Europe’s monetary policy is too restrictive.

“These fears have ricocheted into wild moves in sector popularity. European fund managers are migrating towards lower risk industries – feasting on food and beverages while purging positions in commodities,” says Karen Olney, lead European equities strategist at Merrill Lynch.

In a press release, Merrill Lynch states:

“The biggest sectoral swings from August to September were out of basic resources and chemicals stocks – both recognized as high-risk sectors in a downturn. A net 37 percent of respondents to the European survey are underweight Basic Resources, reflecting a collapse of 47 percent from an overweight of 11 percent just one month. Food & Beverages, a sector most negatively correlated to risk appetite over the past two decades, is seen as a safe haven and saw the biggest upswing. A net 2 percent of investors are underweight the sector now compared with a net 26 percent who were underweight in August.”

Other findings include:

  • Nearly one in four (24 percent) hedge funds surveyed said that they have a net short equities position, compared with 6 percent who held net short equities positions in August.
  • At the same time hedge funds are reducing, or being forced to reduce, their leverage. The weighted average ratio of gross assets to debt fell from 1.2 times in August to 1.0 times in September. More than half of respondents to the question have a leverage ratio of less than 1.0 times.
  • Investors have moved to their largest underweight position in emerging market equities since 2001, thanks to falling commodity prices, global growth concerns and residual inflation fears in emerging market economies.

A net 62 percent of respondents expect the Chinese economy to weaken over the next year.


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