Investors’ risk appetite remained subdued in October, Bank of American Merrill Lynch reported Tuesday in releasing its latest global fund manager survey.

Thirty-one percent of survey participants said they expected a recession over the next year, while 67% did not foresee one.

Investors’ growth expectations fell nine points from the September survey to net 37% expecting global growth to weaken over the next 12 months: 9% said growth would get a lot weaker; 53% said a little weaker; 13% said it would stay the same; 23% said it would get a little stronger; and 1% expected it to get a lot stronger.

Global corporate profit expectations remained bearish, with net 35% of investors saying they expected deterioration over the next 12 months. Still, this was a 10-point improvement from September.

In this month’s survey, 43% of investors said they wanted corporates to spend cash on improving their balance sheets, while 39% preferred that they invest in capital expenditure and 14% wanted them to return cash to shareholders.

Trade war concerns were top of mind in October, cited by 40% of fund managers. Only about one in 10 mentioned other tail risks: monetary policy impotence, a bond market bubble and a credit event.

Forty-three percent of investors in the survey said the U.S./China trade war was the new normal and would not be resolved, while 36% expected a resolution before the 2020 U.S. presidential election.

“Investors remain bearish, but we are seeing signs of green shoots,” Merrill chief investment strategist Michael Hartnett said in a statement. “If concerns about the trade war and Brexit are unrealized, sentiment is likely to improve, validating our bullish tactical views.”

Three-quarters of investors said an end to the trade war would be the most bullish catalyst for stocks in the next six months.

Hopes for a Brexit agreement appeared to be on a “knife edge,” The New York Times reported Tuesday.

Besides the end of the trade war, investors pointed to three other events that would be most bullish for risk assets over the next half year: a German fiscal stimulus package, a 50 basis-point cut by the Federal Reserve or a Chinese infrastructure package.

The fund manager survey was conducted Oct. 4 to 10 among 230 panelists with $620 billion in assets under management.

Allocations

Investor cash levels edged up to 5% from 4.7% last month, well off the recent high of 5.7% in June and just above the 10-year average of 4.6%. Fund managers’ cash allocation slipped one point to 38% overweight, still well above the long-term average, Merrill noted.

The fund manager cash rule, which has been in “buy” territory for 20 months, holds that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities. When the cash balance falls below 3.5%, a contrarian sell signal is generated.

Allocation to global equities continued its slow upward trend, rising five points from last month to net 1% overweight. Allocation to U.S. equities slipped two points to net 15% overweight, but the U.S. was still investors’ most preferred region.

Emerging market equity allocation continued its down trend, stretching back to April, falling two points month over month to 9% overweight. Eurozone equity allocation was 1% overweight, down a point from September.

Investors sold bonds for equities this month. Merrill reported that bond allocation slipped two points from September to 38% underweight.

Long U.S. Treasures held on to its perch atop the most-crowded trade list, identified by 41% of fund managers. Long U.S. tech and growth stocks followed, cited by 24%, and long investment grade corporate bonds, noted by 15% of investors.

— Check out Bearish Investors Say US Economy Has Peaked: E-Trade Survey on ThinkAdvisor.