The number of fund managers predicting a global recession has climbed to an eight-year high, according to the Bank of America Merrill Lynch (BofAML) August Fund Manager Survey, heightened by trade war concerns.
Among the fund managers surveyed, encompassing some 224 investors with assets under management of $553bn, 34% said a global recession is likely in the next 12 months, marking the highest recession probability since October 2011.
This is compared to April's Fund Manager Survey when only 6% of respondents expected a global recession this year, and 86% said they did not believe the inversion of the US Treasury yield curve signalled an impending market downturn. However, 64% of respondents still think a global recession is unlikely.
The results of the August survey also showed 33% of fund managers have taken out protection against a sharp fall in equity markets in the next three months, while 51% said they have not, the highest net score since the survey began asking the question in 2008.
The survey also discovered that net 43% of investors expect lower short-term rates and net 9% expect higher long-term rates over the next 12 months.
BofAML reported that this is the most bullish fund manager survey view on bonds since November 2008.
Trade war concerns topped the list of tail risks cited by investors at 51%, followed by monetary policy impotence at 15%. The risk of a slowdown in China and a bond market bubble were cited by 9% of investors respectively.
Michael Hartnett, chief investment strategist at BofAML, said: "Investors are the most bullish on rates since 2008 as trade war concerns send recession risk to an eight-year high.
"With global policy stimuli at a 2.5-year low, the onus is on the Fed, ECB and PBoC [People's Bank of China] to restore animal spirits."
The survey revealed respondents had the most hawkish policy mix since November 2016, as net 25% of fund manager survey investors said fiscal policy is too restrictive, and net 11% said monetary policy is too stimulative.
Corporate bonds were identified as the asset class most vulnerable to "a classic investment bubble" by 33% of respondents, followed by government bonds at 30%, US equities at 26% and gold at just 8%.
Net 5% of investors expect value to underperform growth over the next 12 months, the lowest level since the global financial crisis, which BofAML said reflected extremely bearish inflation and growth expectations.
According to the survey's findings, investors have rotated out of equities and into bonds.
Fund managers' allocation to bonds climbed 12 percentage points to net 22% saying they are underweight, while allocations to global equities fell 22 percentage points to net 12% underweight.
This article was first published by InvestmentEurope's sister title Investment Week