With the financial turmoil ravaging economies globally, four out of five investors feel the world will continue to be gripped by recession over the coming year, despite the injection of billions of dollars by various governments, says a survey.
The fund managers' survey conducted by financial services provider Merrill Lynch in November showed that investors are still unconvinced that a slew of measures including monetary policy initiatives can help in combating the 'global recession'.
". . . four out of five investors believe that the world will continue to experience recession over the coming year. Policy makers have offered fiscal stimulus packages, liquidity and interest rate cuts, but investors are not yet ready to give their policies benefit of doubt," the report noted.
Further, investors are looking to American equities, where the outlook for corporate profits is the 'most favourable'. About 36 per cent of the people surveyed are overweight on US equities whereas asset allocators are underweight on European and Asian stock markets.
"Investors remain embedded in a defensive asset allocation mindset. Many acknowledge the global policy response seen in recent weeks, but the fear of deflation may be keeping them on the sidelines," said Gary Baker, head of EMEA equity strategy at Merrill Lynch.
"This could start to look risky as the determination of government fiscal responses allied to further monetary easing starts to play through into sector preferences," Baker added.
A total of 180 fund managers participated in the global survey carried out from November 7 to 13, managing $536 billion. Further, 149 managers participated in the regional surveys, managing $334 billion.
Even though 85 per cent of those surveyed expect the Chinese economy -- one of the fastest-growing -- to weaken in the next one year, the country is preferred by investors to any other Asian and emerging markets.
"China is currently seen as the sole Asian beneficiary of policy stimulus and falling oil prices," chief emerging markets equity strategist at Merrill Lynch Michael Hartnett said.
On Europe, as many as 89 per cent of investors anticipate the region to be in recession in the next 12 months while 58 per cent believe that the area's monetary policy is 'too restrictive, suggesting a focus on rapidly slowing growth, rather than inflation'.
"Amid a determined search for growth, investors are apparently turning a blind eye to the risk of inflation . . . In just five months, investors have performed a U-turn on the issue. At some point, the scale of monetary, credit and fiscal stimulus injected globally could put this view at risk," said Karen Olney, lead European equities strategist at Merrill Lynch.
The survey revealed that investors believed the Japanese yen was "overvalued" for the first time in over five years.
"The yen is a global barometer of risk appetite. Its strength is a sign investors remain very risk-averse," Hartnett pointed out.