Recession fears among global fund managers have increased to the highest level in a decade, according to BofA Merrill Lynch International Ltd.'s Global Fund Manager Survey for September.
While still in the minority, 38% of investors surveyed expect a recession over the next 12 months, compared with 59% of investors who believe a downturn is unlikely, yielding the highest net reading for recession risk since August 2009.
However, a net 39% of investors said the inversion of the 2-year and 10-year U.S. Treasury curve does not point to a recession over the same time frame. Fund managers anticipate a fiscal policy boost to steepen the yield curve, as those who believe the current policy is too "restrictive" outnumbered those who said it is too "stimulative."
A net 28% of investors project global growth to weaken over the next year, while 11% of respondents expect higher global inflation. The bank's bull and bear indicator gave a reading of 0.7 in the month, which points to an "extremely bearish" sentiment.
Trade war remains the top "tail risk" for respondents, followed by monetary policy impotence and bond market bubble. Apart from the trade war, investors believe that a German fiscal stimulus package, a 50-basis-point Fed rate cut or a boost in the Chinese infrastructure sector would be the most bullish for risk assets over the next six months.
"We remain contrarian bullish, as this month investors have shown only a modest improvement in risk appetite," said Michael Hartnett, the bank's chief investment strategist. "Fiscal stimulus would boost investor optimism."
The survey included responses from 235 panelists.